More Paean, Less Economics

Gautam Chikermane’s ‘Reform Nation’ claims to be an economic history of India since independence. Actually, it’s a post-truth narrative about three decades of economic ‘reforms’ that ignores the history of growth, unencumbered by the need for evidence of outcomes.

This is a difficult book to review, not due to the complexity of the arguments but its very opposite. There are barely any arguments in it, just extravagant assertions of the kind that reminds one of Soviet-style agit-prop.

Gautam Chikermane’s book, Reform Nation: From the constraints of PV Narasimha Rao to the convictions of Narendra Modi, is a celebration of every single change in the economic policy regime in India since 1991. These the author terms “reforms”. So obvious to him is the potency of these reforms that he does not even consider it necessary to articulate his thoughts in a way that is comprehensible.

Take for instance the statement on the impact of what he terms “the information revolution”, presumably the change wrought by the progress of information technology (IT): “This has had mostly a positive impact on households comprising India. Convenience the currency of transactions, chip the medium of consumption, and digital the texture of money – the information revolution combined with expanded and wireless telecommunications networks has changed for the better our healthcare, education and direct benefit transfers” (pp. 253-54).

Even if one were to imagine that they have understood what is being asserted here, it would be an exaggeration to say that IT has improved health and education in India. The so-called IT revolution could hardly prevent the near total- collapse of the health system during the  recent COVID 19 pandemic. In education, IT can indeed play an enabling role, though not yet the part played by the educator.

Moreover, there is the question of access. The lack of access of many Indians to the equipment necessary – such as computers and smart phones – to leverage the potential of IT that led to a loss of learning during the two-year-long closure of schools due to the pandemic, a feature documented in the latest Annual Status of Education Report (ASER) 2023, released by the NGO Pratham. It is this complete blanking out of the distributional aspect of growth and change in India that characterises this book. That the ‘nation’, as its title suggests, is robustly reforming, with everyone gaining equally from the ensuing prosperity, is the message of this book.

          In the author’s words, “This book is a reference on (sic) India’s economic history since Independence.… It is a saga of independent India, viewed through the prism of economic policies” (p. xiv). On the occasion of India’s 75th anniversary, this is a worthwhile exercise to attempt alright. The question is whether the book does justice to the task it sets itself.

Early on, however, the reader is made aware that the author has no intention of doing this. Ignoring over four decades of history before 1991 he settles down to a narration of the policy changes – once again, the author’s definition of ‘reforms’ - since then. He states, “Although I began the book keeping as base the thirtieth anniversary of India’s economic reforms that began in 1991, eventually, it began to take me along on a course that seemed to be of its own choosing. But exploring three decades of reforms did provide an intellectual anchor around which to carve out ideas, study actions and examine outcomes” (p. xiv).

It may be said that the book develops very few ideas and contains next to no evidence on outcomes, whether for the period since 1991 that he celebrates in terms of India’s economic performance or for the period prior to that, which he excoriates. Instead of an economic evaluation, a rather simple criterion is used, namely whether a period has witnessed multiple changes in the policy regime, termed “reforms”.

Then the reader is told that the book provides a view that challenges some of the extant ideas: “For instance, it debunks the fake narratives that prime ministers Indira Gandhi and her son Rajiv Gandhi were reformers …” (p.xvii). But here it misses a trick. There is by now a vast literature on the economy in the late 1970s, which indicates that the economy began to accelerate then even though no major changes to the policy regime – what Chikermane would term ‘reforms’ - had taken place.

Indeed, as Dani Rodrik and Arvind Subramanian have pointed out, in some ways the policy regime had turned more inward-looking and less market friendly at the time. Their proposed resolution of this seeming puzzle is that, tamed by her stint in the political wilderness, Indira Gandhi decided to turn “pro-business” upon her return.

No similar nuances for the author of this book, though! By ignoring the history of India prior to 1991 he fails to see that not all growth in India had involved liberalising reforms. Further, by ignoring the evidence of economic performance for the period after 1991, he fails to see that the reforms have not always succeeded in achieving the goals set. It is absolutely necessary to study the history of growth to understand how it comes about. In what remains of this review I shall demonstrate just this.

You know that you have encountered an attempt at post-truth history writing when you encounter a statement such as this:  “The economic decline of India can be traced back to the PM Jawaharlal Nehru, whose first policy vehicle ….. laid the policy foundations for the next forty-three years of keeping India poor” (p. xv). To borrow from the author’s own playlist, this is a “fake narrative”.  It is customary for most economists to juxtapose assertions with data, and that is how I propose to go about it.

Economic growth in India in the 20th century

Two points relevant to the author’s assertion just stated can be made on the basis of the graph above. First, the economic policies of the Nehru era engineered a reversal of fortunes i.e., India ended colonial-era stagnation and ignited a growth process that picked up steadily. In particular, growth in India accelerated twice before the reforms of 1991. At least in terms of growth, then, the reforms were not unique.

Of course, this says nothing about poverty which, according to the author, was unaffected by the policies before 1991. The best work on the trend of poverty in India is by the late Martin Ravallion of the World Bank. He and his colleagues Gaurav Datt and Rinku Murgai  show the poverty rate fluctuating in the Nehru years and beginning to fall in the late 1960s, a time described as a ``leftward lurch” to capture Indira Gandhi’s ideological posturing and associated policy moves, aimed mainly at the industrialists of the country. There is no puzzle in the trend identified for poverty.

The mid-1960s witnessed the initiation of the Green Revolution. As the greater part of the population was dependent on agriculture, the permanent rise in the rate of growth of agriculture that ensued, led to a reduction in the poverty rate, a process that gained traction in the 1980s. You may love to hate her, but this authoritarian politician presided over an economy in which growth accelerated and poverty declined without much liberalising reforms.

While there was a strong case for course correction involving a rescinding of controls on industry at the end of the Nehru era, it is a travesty of truth to say that India’s economy underwent a decline in output and that poverty increased after 1947, only to revive and spread prosperity after 1991. Moreover, the author’s triumphant assertion that there is not a single constituency in India that has not seen its economic well-being rise over three decades of reform since 1991 is equally true of the three decades prior.

None of this is to suggest that the economic policy regime in India prior to 1991 was optimal, and, as I have stated above, liberalisation could have come earlier. The relevant question, though, is why per capita income in India has remained lower than in most parts of the Third World, and why poverty was not eliminated earlier.

The answer is not far to seek. If we are to learn anything from the East Asian experience, it would be the importance of human development, spurred by good health and education, for both growth and poverty reduction. When China began to grow faster after the reforms initiated by Deng Xiaoping  in the late 1970s , it had far higher average levels of schooling than India did. This along with a higher level of public sector involvement in the economy of that country remains the case even today.

Everything suggests that just pursuing liberalising reforms, the exclusive focus of Chikermane’s book, will not take India’s economy  closer to China’s in terms of per capita income, currently about three times that of ours. Just as there is no royal road to geometry, it is a pipe dream that India can simply “legislate the path to a $20,000 per capita income” (p. 249).

An indication of this is that despite the frenetic ‘reforms’ of the Modi government celebrated by the author, the economy has not accelerated after 2014. Though the sub-title of his book, ‘From the constraints of PV Narasimha Rao to the convictions of Narendra Modi’, seeks to underpin the title Reform Nation, it is the case that the reforms under the former did lead to an acceleration in growth, even if was delayed by a decade as can be seen in the graph above.

The failure of Modinomics is that its confident assertions have not led to a rise in the private sector investment rate, belying the author’s verdict that the prime minister’s credentials as a strong reformer have  resulted in “giving conviction to capital itself” (p. 246). Going by its  investment record, India’s corporate sector appears unconvinced by this narrative.    

In conclusion, the book does make an important point, however. Gautam Chikermane has got it right when he says that India is governed by what is virtually a colonial bureaucracy, the unaccountable and predatory conduct of which continues to impact economic activity negatively. I would add that it also contributes to a sense of insecurity Indians feel vis-à-vis the state in their own country. Chikermane’s observation that India criminalises unintended non-compliance by entrepreneurs may be extended to say that this can have a chilling effect on entrepreneurship, and, thus, on the expansion of the economy.

We may add to this the entire tangle of colonial–era laws that constrain political freedom and intimidate the citizen. While the author rightly laments the continuing influence of a colonial-style bureaucracy, he does not bother to explain why an avowedly nationalist government, the economic policies of which he admires, continues to use the sedition law, a colonial era legislation,  against its political opponents. Narratives on India’s economy tend to overlook the economic and political consequences of a government machinery bequeathed to India by a foreign power that was intent on subjugating it.

Liberal economists, having internalised contemporary Anglo-American economics, seem to believe that India can be governed by tweaking the fiscal deficit while its home-grown Marxists are stuck with a framework developed for nineteenth century Europe which takes into account  only capital and labour. Both miss the point that India’s political economy is a deadly mix of political parties, capitalists, rich farmers and the bureaucracy, all out to maximise their own returns, often in collusion with one another. At least, reading Chikermane gets you thinking about this.